Understanding 50% EIIS Tax Relief for 2024: Key Insights for Investors
50% EIIS Tax Relief – What Investors Need to Know in 2024
The Employment Investment Incentive Scheme (EIIS) is a powerful government initiative that helps small and medium-sized enterprises (SMEs) secure vital funding by incentivising private investment. For 2024, the EIIS tax relief structure has shifted, offering increased tax benefits for specific types of businesses, with up to 50% tax relief for qualifying investments. So, what exactly is 50% EIIS tax relief, and why is it such an attractive option for investors?
What is 50% EIIS Tax Relief?
The EIIS aims to fuel job creation and economic growth by giving investors significant tax breaks when they fund qualifying businesses. In 2024, the scheme introduced a tiered tax relief system, with the highest tier offering 50% tax relief for investments in pre-revenue companies. Here's how it works:
50% tax relief: For companies that haven't generated any revenue yet.
35% tax relief: For revenue-generating companies within 7 years of their first commercial sale or within 10 years of incorporation.
20% tax relief: For follow-on funding rounds.
While many investments fall into the 35% category, the 50% tax relief is particularly appealing to investors, especially for those seeking higher returns by investing in innovative, pre-revenue companies.
Who Qualifies for 50% EIIS Relief?
Companies that qualify for the 50% EIIS relief must meet specific criteria. Most notably, they must be pre-revenue, meaning they haven't made any commercial sales yet. This makes the relief especially relevant for sectors that require extensive research and development (R&D) before they can start generating income.
Typical examples of pre-revenue companies include those in high R&D fields such as MedTech or medical devices. However, companies involved in newly developed social infrastructure projects can also qualify. These include businesses with physical assets, such as:
Solar and wind farms
Hotels
Creches
Nursing homes
The inclusion of such industries broadens the scope of 50% EIIS tax relief, giving investors opportunities to support tangible, asset-backed projects with potentially high growth trajectories.
What Does Quintas Look for in 50% EIIS Investments?
At Quintas Capital, we focus on reducing investor risk while maximising potential returns. When considering investments that qualify for 50% EIIS tax relief, we prioritise pre-revenue companies with physical assets, as these provide a degree of collateral, further safeguarding investor interests. Specifically, we look for companies that meet the following criteria:
Experienced Promoters: We prefer businesses led by founders with a proven track record in similar industries. Experience lowers the risk of failure and ensures a higher likelihood of business success.
Promoter Capital: The founding team should demonstrate commitment by investing a significant portion of their own capital alongside Quintas and other investors.
Physical Assets: Companies holding physical assets - such as social infrastructure projects - offer collateral, which reduces risk and increases investment security.
No Debts: We avoid investing in companies that carry debt, as it would subordinate our investment and elevate risk for our clients.
Government Contracts: Industries that have government-backed revenue streams, such as solar and wind farms or nursing homes, are especially attractive. Guaranteed income from the Irish government makes these investments more secure and predictable.
How Does 50% EIIS Relief Work
Investing in a company eligible for the 50% EIIS tax relief is straightforward. After making your investment, you'll receive half of that amount back in tax relief, significantly lowering your tax bill. This makes it an attractive option for a wide range of investors, from PAYE earners to business owners and those planning for retirement.
For example, if you invest €100,000 in a qualifying company, you'll receive €50,000 back in tax relief, effectively reducing your investment exposure to €50,000. This tax-saving benefit can then be reinvested in other projects, further increasing your potential returns.
Potential Returns: What to Expect from EIIS Investments
At Quintas, we typically invest in redeemable shares that have a 4-year duration. After this period, the shares are redeemed, often with a coupon of around 20%. This structure means the expected Internal Rate of Return (IRR) for these investments is typically over 18%.
What’s particularly beneficial about the 50% EIIS relief is that you receive the tax relief in Year 1. In some cases, the relief is applied within just one month of the investment, allowing you to reinvest that capital in other EIIS projects, government bonds, or the stock market. This strategy can help you substantially boost your overall return on investment (ROI).
Example: A €100,000 Investment
Initial Investment: €100,000
Tax Relief (50%): €50,000 (received within the first year)
Net Investment: €50,000 (after tax relief)
Redeemable Shares (4 years): Redeemed with a 20% coupon
Expected IRR: Over 18% per annum
Projected Return: €170,000